Koumalatsos v. Town of Holly Ridge

NICHOLAS KOUMALATSOS, Plaintiff, v. TOWN OF HOLLY RIDGE, NORTH CAROLINA; CAPTAIN EWANRICHARDS, in his individual and official capacity; MAYOR JEFF WENZEL,in his individual and official capacity; LORI FAIRCLOTH, in her individualand official capacity; and TOWN MANANGERHEATHER REYNOLDS, in her individual and official capacity, Defendants.

NO. 7:20-CV-136-FL

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA SOUTHERN DIVISION

May 12, 2021

ORDER

This matter is before the court on defendants' motion to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). (DE 19). The issues raised have been briefed fully, and in this posture, are ripe for ruling. For the following reasons, defendants' motion is granted.

STATEMENT OF THE CASE

Plaintiff commenced this action on July 17, 2020, asserting claims under 42 U.S.C. § 1983, for alleged violation of his Fourth and Fourteenth Amendment rights; conspiracy claims under 42 U.S.C. § 1985; as well as state law claims for civil conspiracy, trespass, and claims under the North Carolina Constitution. Plaintiff seeks compensatory, statutory, and punitive damages; attorneys' fees; costs; interest; and jury trial.

On September 18, 2020, defendants filed the instant motion to dismiss for lack of subject matter jurisdiction, arguing plaintiff lacks standing. In support, defendants reply upon a memorandum of law and exhibits, including: 1) assumed business name certificate for Alexander Industries LLC ("Alexander Industries"), 2) articles of organization for Alexander Industries, 3) 2020 annual report for Alexander Industries, and 4) selected pages from website concerning Snap Fitness 24/7 in Holly Ridge, North Carolina. Plaintiff responded in opposition on October 9, 2020, and defendants replied on October 30, 2020.

STATEMENT OF FACTS

The facts alleged in plaintiff's complaint may be summarized as follows. On May 31, 2018, plaintiff, as chief executive officer of Alexander Industries, purchased a health, fitness, and exercise facility known as Snap Fitness 24/7 (the "Gym"). (Compl. (DE 2) ¶ 16). Plaintiff operates the Gym with his wife as a family business in Holly Ridge, North Carolina. (Id. ¶¶ 17-18).

On March 23, 2020, the Governor of North Carolina issued executive order 120, prohibiting mass gatherings of more than 100 people at indoor exercise facilities and subjecting violators to prosecution under North Carolina General Statute § 166A-19.30(d) for a Class 2 misdemeanor. (Id. ¶ 22). As a result, plaintiff closed the Gym on March 25, 2020. (Id. ¶ 23). Approximately one month later, plaintiff re-opened the Gym, allegedly implementing guidance from the Centers for Disease Control and Prevention. (Id. ¶ 24).

On May 7, 2020, members of the Holly Ridge Police Department allegedly entered the Gym through the front door, which was open to allow proper ventilation. (Id. ¶ 26). Defendant Captain Ewan Richards ("Richards") allegedly ordered the patrons of the Gym to leave immediately, or face prosecution, and ordered another officer to issue plaintiff a citation for violation of Executive Order 120. (Id. ¶¶ 27-29).

Shortly thereafter, Keith Whaley ("Whaley"), Holly Ridge Chief of Police, informed plaintiff that the citation would be rescinded, and further citations would not be issued until plaintiff had been given three warnings, in accordance with Holly Ridge Police Department's policy. (Id. ¶ 31). Relying upon the three warning policy, plaintiff reopened the Gym on May 8, 2020. (Id. ¶ 33). The next day, Whaley issued plaintiff his first warning. (Id. ¶ 35).

Plaintiff operated the Gym from May 9, 2020, until May 18, 2020, without receiving additional warnings or other contact from the Holly Ridge Police Department. (Id. ¶ 36). However, on May 18, 2020, defendant Richards, defendant Heather Reynolds ("Reynolds"), the Town Manager, and defendant Lori Faircloth ("Faircloth") allegedly conspired to meet, and did meet, at the Gym to conduct a search in furtherance of their investigation. (Id. ¶¶ 37-38). Defendants Faircloth and Richards allegedly gained access to the Gym, through a keycard that the Gym's prior owner had provided to defendant Town of Holly Ridge, North Carolina ("Town"). (Id. ¶¶ 39-40). Once inside of the Gym, defendants Richards and Faircloth allegedly threatened patrons with criminal prosecution, and defendant Richards took pictures of the patron's license plates to solidify the alleged threats. (Id. ¶¶ 40-42).

Plaintiff alleges that neither he nor his staff authorized defendants' keycard access. (Id. ¶ 41). Moreover, defendants allegedly did not seek a search warrant from a neutral magistrate prior to entering the Gym. (Id.).

COURT'S DISCUSSION

A. Standard of Review

A motion to dismiss under Rule 12(b)(1) challenges the court's subject matter jurisdiction. Such motion may either 1) assert the complaint fails to state facts upon which subject matter jurisdiction may be based, or 2) attack the existence of subject matter jurisdiction in fact, apartfrom the complaint. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). Where a defendant raises a "facial challenge[ ] to standing that do[es] not dispute the jurisdictional facts alleged in the complaint," the court accepts " the facts of the complaint as true as [the court] would in context of a Rule 12(b)(6) challenge." Kenny v. Wilson, 885 F.3d 280, 287 (4th Cir. 2018).

When a defendant challenges the factual predicate of subject matter jurisdiction, a court "is to regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Richmond, Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). The nonmoving party in such case "must set forth specific facts beyond the pleadings to show that a genuine issue of material fact exists." Id.

B. Analysis

1. Lack of Standing

It is well established that standing is a threshold jurisdictional issue that must be determined first because "[w]ithout jurisdiction the court cannot proceed at all in any cause." Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998) (citations omitted). The Supreme Court has explained, "the irreducible constitutional minimum of standing contains three elements." Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). To have standing, a plaintiff must show 1) an "injury in fact," meaning an injury that is "concrete and particularized" and "actual or imminent; 2) a " causal connection between the injury and the conduct complained of," meaning that the injury is "fairly traceable" to the defendant' s actions; and 3) a likelihood that the injury "will be redressed by a favorable decision." Id. at 560-61.

Defendants argue plaintiff lacks standing, on grounds that Alexander Industries, rather than plaintiff, owns the Gym. Plaintiff concedes that he purchased the Gym in his capacity as chief executive officer and managing member of Alexander Industries. (Mem. (DE 21) at 2).

"It is considered a 'fundamental rule' that 'a shareholder—even the sole shareholder—does not have standing to assert claims alleging wrongs to the corporation.'" Smith Setzer & Sons, Inc. v. S.C. Procurement Rev. Panel, 20 F.3d 1311, 1317 (4th Cir. 1994) (quoting Jones v. Niagara Frontier Transp. Auth., 836 F.2d 731 (2d Cir. 1987)). This rule, sometimes referred to as the "shareholder standing" rule, applies equally in the context of limited liability companies, such as Alexander Industries. See Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 347-48 (4th Cir. 2013) ("[T]he Vitales have failed to account for the fact that they elected to conduct their business through a limited liability company ('LLC') and that, just as they received protection of their personal assets from liability in doing so, they also assumed a role as agents for the company. At bottom, they gave up standing to claim damages to the LLC, even if they also suffered personal damages as a consequence.") (citing Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006)).

"While this rule . . . is regularly encountered in traditional business litigation, it also has been uniformly applied on the infrequent occasions it has arisen in suits against the state for statutory or constitutional violations." Smith Setzer & Sons, 20 F.3d at 1317 (citations omitted); see Flynn v. Merrick, 881 F.2d 446, 450 (7th Cir.1989) (explaining that shareholders lack standing to bring § 1983 action claiming injury to the corporation in which they own shares); Potthoff v. Morin, 245 F.3d 710, 717 (8th Cir. 2001) (explaining that an individual shareholder's § 1983 claim "can survive only if he has alleged that he personally has suffered a direct, nonderivative injury"). Therefore, plaintiff, as chief executive officer and managing member of AlexanderIndustries, lacks standing to assert claims on behalf of Alexander Industries, and such claims must be dismissed without prejudice.

Nevertheless, plaintiff contends that he is asserting a claim for violation of his own Fourth Amendment rights, rather than those of Alexander Industries. The Fourth Amendment does not require an individual to own a premises in order to have a reasonable expectation of privacy therein. See Byrd v. United States, 138 S. Ct. 1518, 1527 (2018) ("[I]t is by now well established that a person need not always have a recognized common-law property interest in the place searched to be able to claim a reasonable expectation of privacy in it." (citations omitted)). Here, plaintiff alleges that defendants Richards and Faircloth unlawfully, and without authorization, gained access to the Gym using a keycard defendant Town obtained from the Gym's prior owner. (Compl. (DE 2) ¶¶ 40-41). Once inside the Gym, defendant Richards and Faircloth allegedly threatened and harassed staff and patrons with criminal prosecution, and defendant Richards allegedly took pictures of all of the license plates of patron's...